[Federal Register Volume 83, Number 36 (Thursday, February 22, 2018)]
[Notices]
[Pages 7824-7827]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03567]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82721; File No. SR-PEARL-2018-01]


Self-Regulatory Organizations; MIAX PEARL LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 
517A, Aggregate Risk Manager for EEMs (``ARM-E''), and Rule 517B, 
Aggregate Risk Manager for Market Makers (``ARM-M'')

February 15, 2018.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on February 6, 2018, MIAX PEARL, LLC (``MIAX 
PEARL'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rule 517A, 
Aggregate Risk Manager for EEMs (``ARM-E''), and Rule 517B, Aggregate 
Risk Manager for Market Makers (``ARM-M'').
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
PEARL's principal office, and at the Commission's Public Reference 
Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 517A, Aggregate Risk Manager 
for EEMs (``ARM-E''), and Rule 517B, Aggregate Risk Manager for Market 
Makers (``ARM-M''), to enhance the Aggregate Risk Manager (``ARM'') 
protections available to Members \3\ on the Exchange. Specifically, the 
Exchange proposes to adopt a single side protection (``SSP'') feature, 
which is an additional, optional, and more granular feature of the ARM 
protection that is currently offered by the Exchange. Accordingly, the 
Exchange proposes to modify (i) Interpretations and Policies of Rule 
517A, to adopt new subsection .02, EEM Single Side Protection; and (ii) 
Interpretations and Policies .01, of Rule 517B, to adopt new subsection 
(c), Market Maker Single Side Protection.
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    \3\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of the MIAX 
PEARL Rules for purposes of trading on the Exchange as an 
``Electronic Exchange Member'' or ``Market Maker.'' Members are 
deemed ``members'' under the Exchange Act. See Exchange Rule 100.
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    The Exchange currently offers a number of risk protection 
mechanisms to its Members. One important risk protection mechanism is 
the ARM. The purpose of the ARM is to remove the Member from the 
market, once certain pre-determined trading limit thresholds (set up in 
advance by the Member) have been triggered, to limit the risk exposure 
of the Member.
    The Exchange now proposes to further enhance the ARM to introduce 
an SSP feature. The SSP feature, which is optional, will provide an 
additional level of granularity to the ARM, as this protection will 
apply only to quotes \4\ and orders on the same side (bid or offer) of 
an individual option.\5\ Members who avail themselves of the SSP 
feature will have even greater precision to tailor their risk tolerance 
level.
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    \4\ The term ``quote'' or ``quotation'' means a bid or offer 
entered by a Market Maker as a firm order that updates the Market 
Maker's previous bid or offer, if any. When the term order is used 
in these Rules and a bid or offer is entered by the Market Maker in 
the option series to which such Market Maker is registered, such 
order shall, as applicable, constitute a quote or quotation for 
purposes of these Rules. See Exchange Rule 100.
    \5\ The term ``individual option'' means an option contract that 
is either a put or a call, covering a specific underlying security 
and having a specific exercise price and expiration date. See 
Exchange Rule 100.
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    To implement the SSP feature for Electronic Exchange Members \6\ 
the Exchange proposes to adopt new subsection .02 to Interpretations 
and Policies of Rule 517A, entitled EEM Single Side Protection. 
Subsection .02 will provide that an EEM may determine to engage the EEM 
Single Side Protection (``SSP'') feature for orders delivered via the 
MEO Interface \7\ by MPID.\8\ If engaged, if the full remaining size of 
an EEM's order, in an individual option, is exhausted by a trade, the 
System \9\ will trigger the SSP. When triggered, the System will cancel 
all open orders and block all new inbound orders delivered via the MEO 
Interface, for that particular side of that individual option for that 
MPID. The System will provide a notification message to the EEM that 
the SSP has been triggered. The block will remain in effect until the 
EEM notifies the Exchange (in a manner required by the

[[Page 7825]]

Exchange and communicated to Members by Regulatory Circular) \10\ to 
reset the SSP (``SSP Reset''). The SSP feature is optionally available 
and may be enabled for an EEM's MPID. Additionally, the Exchange notes 
that Intermarket Sweep Orders \11\ are not eligible for EEM Single Side 
Protection.
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    \6\ The term ``Electronic Exchange Member'' or ``EEM'' means the 
holder of a Trading Permit who is a Member representing as agent 
Public Customer Orders or Non-Customer Orders on the Exchange and 
those non-Market Maker Members conducting proprietary trading. 
Electronic Exchange Members are deemed ``members'' under the 
Exchange Act. See Exchange Rule 100.
    \7\ The term ``MEO Interface'' means a binary order interface 
used for submitting certain order types (as set forth in Rule 516) 
to the MIAX PEARL System. See Exchange Rule 100.
    \8\ The term ``MPID'' means unique market participant 
identifier. See Exchange Rule 100.
    \9\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \10\ The Exchange notes that the manner by which Members will be 
required to notify the Exchange to remove the block will be similar 
to that of MIAX Options. See MIAX Options Regulatory Circular 2018-
04, January 24, 2018.
    \11\ An Intermarket Sweep Order or ``ISO'', as defined in Rule 
1400(h), is a limit order that is designated by a Member as an ISO 
in the manner prescribed by the Exchange, and is executed within the 
System by Members without respect to Protected Quotations of other 
Eligible Exchanges as defined in Rule 1400(p) and (f). ISOs are 
immediately executable within the System and shall not be eligible 
for routing. See Exchange Rule 516(f).
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    To implement the SSP feature for Market Makers,\12\ the Exchange 
proposes to adopt new subsection (c) to Interpretations and Policies 
.01 of Rule 517B, entitled Market Maker Single Side Protection. 
Subsection (c) will provide that a Market Maker may determine to engage 
the Market Maker Single Side Protection (``SSP'') feature for orders 
delivered via the MEO Interface by MPID. If engaged, if the full 
remaining size of a Market Maker's order, in an individual option, is 
exhausted by a trade, the System will trigger the SSP. When triggered, 
the System will cancel all open orders and block all new inbound orders 
delivered via the MEO Interface, for that particular side of that 
individual option for that MPID. The System will provide a notification 
message to the Market Maker that the SSP has been triggered. The block 
will remain in effect until the Market Maker notifies the Exchange (in 
a manner required by the Exchange and communicated to Members by 
Regulatory Circular) \13\ to reset the SSP (``SSP Reset''). The SSP 
feature is optionally available and may be enabled for a Market Maker's 
MPID. Additionally, the Exchange notes that Intermarket Sweep Orders 
are not eligible for Market Maker Single Side Protection.
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    \12\ The term ``Market Maker'' or ``MM'' means a Member 
registered with the Exchange for the purpose of making markets in 
option contracts traded on the Exchange and that is vested with the 
rights and responsibilities specified in Chapter VI of the MIAX 
PEARL Rules. See Exchange Rule 100.
    \13\ See supra note 10.
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    The Exchange notes that the proposed rule change is substantially 
similar to a rule that is currently operative on the Exchange's 
affiliate, MIAX Options Exchange (``MIAX Options'').\14\ MIAX Options 
has two types of Members; \15\ MIAX Options Market Makers \16\ and MIAX 
Options Electronic Exchange Members.\17\ The Aggregate Risk Manager 
protections available on MIAX Options are available only to Market 
Makers of the Exchange. Further, on MIAX Options, the only interface 
connection that allows Market Makers of the Exchange to provide 
quotations \18\ to the market is the MIAX Express Interface (``MEI'') 
connection.\19\ Therefore, SSP on MIAX Options is limited to MIAX 
Options Market Makers that send Standard quotes \20\ and select eQuotes 
\21\ to the MIAX Options Exchange via an MEI connection.
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    \14\ See Securities Exchange Act Release No. 82394 (December 22, 
2017), 82 FR 61638 (December 28, 2017) (SR-MIAX-2017-49). (The 
Exchange notes that its proposal is based on the amendment to MIAX 
Options Rule 612).
    \15\ The term MIAX Options ``Member'' means an individual or 
organization approved to exercise the trading rights associate with 
a Trading Permit. MIAX Options Members are deemed ``members'' under 
the Exchange Act. See MIAX Options Exchange Rule 100.
    \16\ The term MIAX Options ``Market Makers'' refers to ``Lead 
Market Makers'', ``Primary Lead Market Makers'' and ``Registered 
Market Makers'' on MIAX Options Exchange collectively. See MIAX 
Options Exchange Rule 100.
    \17\ The term MIAX Options ``Electronic Exchange Member'' means 
the holder of a Trading Permit who is not a Market Maker. Electronic 
Exchange Members are deemed ``members'' under the Exchange Act. See 
MIAX Options Exchange Rule 100.
    \18\ The term ``quote'' or ``quotation'' means a bid or offer 
entered by a Market Maker that is firm and may update the Market 
Maker's previous quote, if any. The Rules of the Exchange provide 
for the use of different types of quotes, including Standard quotes 
and eQuotes, as more fully described in MIAX Options Exchange Rule 
517. A Market Maker may, at times, choose to have multiple types of 
quotes active in an individual option. See MIAX Options Exchange 
Rule 100.
    \19\ The MIAX Express Interface is a connection to MIAX systems 
that enables Market Makers to submit simple and complex electronic 
quotes to MIAX. See MIAX Options Fee Schedule, Section 5)d)ii), 
footnote 26.
    \20\ A Standard quote is a quote submitted by a Market Maker 
that cancels and replaces the Market Maker's previous Standard 
quote, if any. See MIAX Options Exchange Rule 517(a)(1).
    \21\ An eQuote is a quote with a specific time in force that 
does not automatically cancel and replace a previous Standard quote 
or eQuote. See MIAX Options Exchange Rule 517(a)(2).
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    Similarly, MIAX PEARL has two types of Members; Market Makers \22\ 
and Electronic Exchange Members.\23\ The MEO Interface on MIAX PEARL is 
analogous to the MEI Interface on MIAX Options. However, on MIAX PEARL, 
both Market Makers and EEMs may connect to the System using the MEO 
Interface. Therefore, the Exchange is proposing to amend Exchange Rule 
517A, Aggregate Risk Manager for EEMs (``ARM-E''), and also Exchange 
Rule 517B, Aggregate Risk Manager for Market Makers (``ARM-M'').
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    \22\ See supra note 12.
    \23\ See supra note 6.
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    On MIAX PEARL, the proposed rule provides that when the SSP is 
triggered the System will cancel all open orders submitted via the MEO 
interface and block all new inbound orders. Intermarket Sweep Orders 
are not eligible for SSP and are not canceled or blocked when the SSP 
is triggered. On MIAX Options, the rule text provides that when the SSP 
is triggered the System \24\ will cancel all Standard quotes and block 
all new inbound Standard quotes, IOC eQuotes,\25\ and FOK eQuotes \26\ 
for that particular side of that individual option for that MPID.\27\ 
The proposed rule will provide the same functionality currently offered 
on MIAX Options,\28\ however due to technical differences between the 
MIAX Options interface (MEI) and the MIAX PEARL interface (MEO), the 
proposed rule text is not identical to that of MIAX Options.
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    \24\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See MIAX Options 
Exchange Rule 100.
    \25\ An immediate or cancel or ``IOC'' eQuote is an eQuote 
submitted by a Market Maker that must be matched with another quote 
or order for an execution in whole or in part upon receipt by the 
System. Any portion of the IOC eQuote not executed will be 
immediately canceled. See MIAX Options Exchange Rule 517(a)(2)(iv).
    \26\ A fill or kill or ``FOK'' eQuote is an eQuote submitted by 
a Market Maker that must be matched with another quote or order for 
an execution in its entirety at a single price upon receipt into the 
System or will be immediately cancelled. See MIAX Options Exchange 
Rule 517(a)(2)(v).
    \27\ MIAX Options has a separate Intermarket Sweep eQuote that 
is not eligible for SSP and that is not canceled or blocked when the 
SSP is triggered. See MIAX Options Exchange Rule 517(a)(2)(vi).
    \28\ See MIAX Options Exchange Rule 612, Aggregate Risk Manager 
(ARM).
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    To maintain consistency in the functionality between MIAX Options 
and MIAX PEARL, and to promote the operation of a fair and orderly 
market, the Exchange is excluding Intermarket Sweep Orders from the SSP 
functionality on MIAX PEARL.\29\ MIAX PEARL and MIAX Options have a 
number of common Members and where feasible the Exchange strives to 
provide consistency between the markets so as to avoid confusion among 
the Members.
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    \29\ See supra note 27.
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    The Exchange has analyzed its capacity and represents that it has 
the necessary systems capacity to handle the potential additional 
message traffic that may arise from the cancellation of open orders as 
a result of SSP being triggered.
    The Exchange will announce the implementation date of the proposed 
rule change by Regulatory Circular to be published no later than 60 
days following the operative date of the proposed rule. The 
implementation date

[[Page 7826]]

will be no later than 60 days following the issuance of the Regulatory 
Circular.
2. Statutory Basis
    MIAX PEARL believes that its proposed rule change is consistent 
with Section 6(b) of the Act \30\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \31\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system and, in general, to protect investors and the public interest.
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    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed changes remove impediments to 
and perfect the mechanisms of a free and open market and a national 
market system and, in general, protect investors and the public 
interest by providing Members with an additional risk management tool. 
Members who are Market Makers have a heightened obligation on the 
Exchange and are obligated to submit continuous two-sided quotations in 
a certain number of series in their appointed classes for a certain 
percentage of time in each trading session,\32\ rendering them 
vulnerable to risk from market conditions. Additionally, EEMs may also 
submit a large volume of orders that rest on the book also rendering 
them vulnerable to risk from market conditions.
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    \32\ See Exchange Rule 605.
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    The ability of a Member to engage the SSP feature of ARM is a 
valuable tool in assisting Members in risk management. Without adequate 
risk management tools Members could reduce the size of their quotations 
and orders which could undermine the quality of the markets available 
to customers and other market participants. The proposed rule change 
removes impediments to and is designed to perfect the mechanisms of a 
free and open market by giving Members the ability to further refine 
their risk protections from an option class level to a single side of 
an individual option. Accordingly, the SSP feature is designed to 
provide Members with greater control over their quotations and orders 
in the market, thereby removing impediments to and helping to perfect 
the mechanisms of a free and open market and a national market system 
and, in general, protecting investors and the public interest. In 
addition, providing Members with more tools for managing risk will 
facilitate transactions in securities because, as noted above, Members 
will have more confidence that protections are in place that reduce the 
risks from market events. As a result, the new functionality has the 
potential to promote just and equitable principles of trade.
    The Exchange believes the proposed changes remove impediments to 
and perfect the mechanisms of a free and open market and a national 
market system and, in general, protect investors and the public 
interest, and promote a fair and orderly market by excluding 
Intermarket Sweep Orders from the SSP functionality. Intermarket Sweep 
Orders are used to prevent locked and crossed markets from occurring 
\33\ and it is in the public interest for markets to remain uncrossed 
to promote competition and price discovery.
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    \33\ See supra note 11.
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    The Exchange notes that the proposed rule change will not relieve 
Exchange Market Makers of their continuous quoting obligations under 
Exchange Rule 605 or any other obligation under the Rules of the 
Exchange, or any obligations arising under Reg NMS Rule 602.\34\ Nor 
will the proposed rule change prohibit the Exchange from taking 
disciplinary action against a Market Maker for failing to meet their 
continuous quoting obligation each trading day.
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    \34\ 17 CFR 242.602.
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    Additionally, the Exchange notes that a similar rule is currently 
operative on the Exchange's affiliate, MIAX Options.\35\ MIAX PEARL and 
MIAX Options have a number of common members and where feasible the 
Exchange strives to offer similar functionality to reduce the potential 
for confusion by its members that are also members of MIAX Options.
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    \35\ See supra note 28.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed rule change will foster competition by providing Members 
with the ability to specifically customize their use of the Exchange's 
risk management tools in order to compete for executions and order 
flow.
    Additionally, the Exchange believes that the proposed rule change 
should promote competition as it is designed to allow Members greater 
flexibility and control of their risk exposure to protect them from 
market conditions that may increase their risk exposure in the market. 
The Exchange does not believe the proposed rule change will impose a 
burden on intra-market competition as the optional risk protection 
feature is equally available to all Members of the Exchange.
    For all the reasons stated, the Exchange does not believe that the 
proposed rule change will impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act, and 
believes the proposed change will enhance competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \36\ and Rule 19b-4(f)(6) thereunder.\37\
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    \36\ 15 U.S.C. 78s(b)(3)(A).
    \37\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \38\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \39\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the Exchange may immediately implement risk protections similar to 
those found on MIAX Options. The Exchange states that MIAX PEARL and 
MIAX Options have a number of common Members and

[[Page 7827]]

where feasible it intends to implement similar risk protections to 
provide consistency between markets so as to avoid confusion among 
Members. For this reason, the Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and 
the public interest. Therefore, the Commission hereby waives the 
operative delay and designates the proposed rule change operative upon 
filing.\40\
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    \38\ 17 CFR 240.19b-4(f)(6).
    \39\ 17 CFR 240.19b-4(f)(6)(iii).
    \40\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-PEARL-2018-01 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-PEARL-2018-01. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-PEARL-2018-01 and should be submitted on 
or before March 15, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-03567 Filed 2-21-18; 8:45 am]
 BILLING CODE 8011-01-P


